Appeal
by the plaintiff from (1) an order of the Supreme Court,
Nassau County (Stephen A. Bucaria, J.), entered June 15,
2015, and (2) a judgment of that court entered March 24,
2016, and cross appeal by the defendant from the judgment.
The judgment is in favor of the plaintiff and against the
defendant in the principal sum of $187, 500. The appeal and
cross appeal from the judgment bring up for review orders of
that court entered October 22, 2013, February 5, 2014, March
28, 2014, June 18, 2014, and September 2, 2014, and the order
appealed from entered June 15, 2015.

ORDERED
that the appeal from the order entered June 15, 2015, is
dismissed, without costs or disbursements; and it is further,
ORDERED that the judgment is reversed, on the law, the facts,
and in the exercise of discretion, without costs or
disbursements, (a) the determination in the order entered
February 5, 2014, denying the plaintiff's motion pursuant
to CPLR 3124 to compel the defendant to comply with discovery
demands is vacated, (b), upon reargument and renewal, the
determination in the order entered February 5, 2014, made
upon renewal, in effect, vacating the order entered October
22, 2013, and thereupon granting that branch of the
defendant's cross motion which was for summary judgment
declaring that it was not obligated to defend the plaintiff
in the underlying action after September 30, 2013, and
otherwise denying the cross motion, and granting that branch
of the plaintiff's motion which was for summary judgment
declaring that the defendant was obligated to defend the
plaintiff in the underlying action through September 30,
2013, and otherwise denying the motion, is adhered to, (c)
the determination in the order entered June 15, 2015, that
the plaintiff was entitled to an award of damages in the
principal sum of $187, 500 on its cause of action to recover
damages for breach of contract is vacated, the orders entered
March 28, 2014, and June 18, 2014, are modified accordingly,
and the matter is remitted to the Supreme Court, Nassau
County, for further proceedings consistent herewith.

The
appeal from the intermediate order entered June 15, 2015,
must be dismissed because the right of direct appeal
therefrom terminated with the entry of the judgment in the
action (see Matter of Aho,39 N.Y.2d 241, 248). The
issues raised on the appeal from the order are brought up for
review and have been considered on the appeal from the
judgment (see CPLR 5501[a][1]).

These
appeals arise out of an insurance coverage dispute between
the plaintiff, East Ramapo Central School District
(hereinafter the School District), and its insurer, the
defendant, New York Schools Insurance Reciprocal (hereinafter
NYSIR). The policy issued by NYSIR provided coverage for
claims, "made against the Insured and reported to
[NYSIR] during the Policy Period and any Extended Reporting
Period, " for "Wrongful Act(s) by the Insured in
the performance of duties for the School Entity." The
policy defined the term "School Entity" as the
School District. The term "Insured" was defined, in
relevant part, as "the School Entity, the Board of
Education of the School Entity, all present and former
members of the Board of Education, officers, trustees,
employees... but only [ ] while acting solely within the
course and scope of their duties or employment for the School
Entity." The term "Wrongful Act" was defined
under the policy as "any actual or alleged breach of
duty, negligent error, misstatement, misleading statement or
omission by an Insured solely in the course and scope of the
Insured's duties or employment for the School
Entity." The policy excluded coverage for claims related
to, among other things, "any fraudulent, dishonest,
malicious, criminal or intentional wrongful act or omission
by an Insured."

While
the policy was in effect, a putative class action entitled
Montesa v Schwartz (hereinafter the underlying
action) was commenced under Docket No. 12-cv-06057 in the
United States District Court for the Southern District of New
York (hereinafter the District Court). The complaint in the
underlying action alleged that the defendants in the
underlying action, who are former and present members,
employees, or attorneys of the School District's Board of
Education, "engaged in numerous schemes to siphon off
public money to support private religious institutions in
various yeshivas, forcing a large cut in instructional
programming in the public schools to a degree that the right
of public school children to an education is impugned."
The School District, initially named as a plaintiff in the
underlying action, subsequently intervened as a defendant in
that action.

The
complaint in the underlying action alleged, inter alia,
violations of the Establishment Clause of the First Amendment
and the Equal Protection Clause of the Fourteenth Amendment
to the United States Constitution and article VIII of the New
York Constitution, and claims of breach of fiduciary duty and
fraud. The School District provided notice of the underlying
action to NYSIR. NYSIR disclaimed coverage on several
grounds, including that the alleged acts of the defendants in
the underlying action fell outside the scope of their duties
and employment with the School District and that the
allegations in the underlying action cast the pleadings in
that action wholly within the policy's exclusion for
claims related to intentional, wrongful acts.

After
an amended complaint was filed in the underlying action,
which was substantially similar to the original complaint in
that action, the School District commenced this action
against NYSIR. It asserted a cause of action alleging breach
of contract, a cause of action alleging breach of the implied
covenant of good faith and fair dealing, and a cause of
action seeking a declaration that NYSIR had a duty to defend
and indemnify it in the underlying action. Thereafter, the
School District moved for summary judgment on its cause of
action seeking a declaration that NYSIR was obligated to
defend it in the underlying action. NYSIR cross-moved for
summary judgment declaring that it was not so obligated. By
order entered October 22, 2013, the Supreme Court granted the
School District's motion and denied NYSIR's cross
motion, concluding that the allegations of the amended
complaint in the underlying action, construed liberally,
suggested a reasonable possibility of coverage. The court
emphasized that the cause of action alleging breach of
fiduciary duty was premised on both intentional and negligent
conduct and, therefore, found that the allegations of the
amended complaint did not fall entirely within a policy
exclusion.

"A
duty to defend is triggered by the allegations contained in
the underlying complaint" (BP A.C. Corp. v One
Beacon Ins. Group,8 N.Y.3d 708, 714). "An
insurer's duty to defend is broader than the duty to
indemnify and arises whenever the allegations of the
complaint against the insured, liberally construed,
potentially fall within the scope of the risks undertaken by
the insurer" (Salt Constr. Corp. v Farm Family Cas.
Ins. Co.,120 A.D.3d 568, 569; see BP A.C. Corp. v
One Beacon Ins. Group, 8 N.Y.3d at 714). " If any
of the claims against [an] insured arguably arise from
covered events, the insurer is required to defend the entire
action'" (Town of Massena v Healthcare
Underwriters Mut. Ins. Co.,98 N.Y.2d 435, 443, quoting
Frontier Insulation Contrs. v Merchants Mut. Ins.
Co.,91 N.Y.2d 169, 175). "Indeed, [t]he duty to
defend arises whenever the allegations in a complaint against
the insured fall within the scope of the risks undertaken by
the insurer... [and, it is immaterial] that the complaint
against the insured asserts additional claims which fall
outside the policy's general coverage or within its
exclusory provisions'" (Town of Massena v
Healthcare Underwriters Mut. Ins. Co., 98 N.Y.2d at
443-444, quoting Seaboard Sur. Co. v Gillette Co.,64 N.Y.2d 304, 310).

Nonetheless,
"an insurer can be relieved of its duty to defend if it
establishes as a matter of law that there is no possible
factual or legal basis on which it might eventually be
obligated to indemnify its insured under any policy
provision" (Allstate Ins. Co. v Zuk, 78 N.Y.2d
41, 45; see Cumberland Farms, Inc. v Tower Group,
Inc.,137 A.D.3d 1068, 1070). Policy exclusions are to
be strictly and narrowly construed and are not to be extended
by interpretation or implication (see Pioneer Tower
Owners Assn. v State Farm Fire & Cas. Co., 12 N.Y.3d
302, 307; Seaboard Sur. Co. v Gillette Co., 64
N.Y.2d at 311). "To be relieved of its duty to defend on
the basis of a policy exclusion, the insurer bears the heavy
burden of demonstrating that the allegations of the complaint
[in the underlying action] cast the pleadings wholly within
that exclusion, that the exclusion is subject to no other
reasonable interpretation, and that there is no possible
factual or legal basis upon which the insurer may eventually
be held obligated to indemnify the insured under any policy
provision" (Frontier Insulation Contrs. v Merchants
Mut. Ins. Co., 91 N.Y.2d at 175; see 492 Kings
Realty, LLC v 506 Kings, LLC,88 A.D.3d 941, 943;
Exeter Bldg. Corp. v Scottsdale Ins. Co., 79 A.D.3d
927, 929).

In the
order entered October 22, 2013, the Supreme Court properly
determined that NYSIR had a duty to defend the School
District in the underlying action. The amended complaint
included allegations that the defendants breached their
fiduciary duty "[b]y failing to take reasonable steps to
ascertain the value'" of certain properties that
were sold by the School District "and not utilizing a
method of sale, which is apt to bring in the best
price.'" Those allegations, liberally construed,
suggest a reasonable possibility of coverage, and therefore,
triggered NYSIR's duty to defend in the underlying action
(see Frontier Insulation Contrs. v Merchants Mut. Ins.
Co., 91 N.Y.2d at 175; GMM Realty, LLC v St. Paul
Fire & Mar. Ins. Co.,129 A.D.3d 909, 910;
Barkan v New York Schools Ins. Reciprocal, 65 A.D.3d
1061). In addition, the court properly determined that the
alleged acts of the defendants in the underlying action,
including allegations that those defendants mishandled and
misused School District funds, occurred within the course and
scope of their employment with the School District (see
Matter of Dreyer v City of Saratoga Springs, 43 A.D.3d
586, 587-588).

Our
analysis, however, does not end here. On September 30, 2013,
in the underlying action, the District Court dismissed 8 of
the 10 causes of action asserted in the amended complaint,
including the cause of action alleging breach of fiduciary
duty. Thereafter, NYSIR moved for leave to renew its cross
motion for summary judgment. By order entered February 5,
2014, the Supreme Court granted leave to renew, and upon
renewal, in effect, vacated the order entered October 22,
2013, and ...

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